Ibsan Islam Edi and Ibnat Islam Etu

The central bank has finally approved nine more banks in addition to existing 47 commercial banks in Bangladesh. Three new NRB commercial banks, sponsored by non-resident Bangladeshis (NRBs), and six private commercial banks (PCBs), have been approved aiming to help boost the inflow of foreign exchange and strengthen the ongoing financial inclusion programmes through bringing unbanked people under the banking network respectively.

The letters of intent (LoIs) `have already been issued to the sponsors of such approved banks. There have been many significant developments in the economy of Bangladesh since 2000-2001, the central bank stated, explaining the economic context and rationale behind issuing licences in favour of new banks.

The economy has grown and the banking system has become more competitive but there are still a large number of under-banked people in Bangladesh.

Recent estimates from a survey conducted by the Institute of Microfinance (IoF) found that only 45 per cent of the nearly 9000 households surveyed do have access to banks and micro-finance institutions (MFIs) for loans.

The population per branch (21065) and the ratio of loan accounts per 1000 adults (42yrs) suggest that the outreach of the formal financial sector in Bangladesh is lower than that in India (14485 and 124 respectively) and Pakistan (20340 population per branch and 47 loan accounts per 1000), according to the statement of IoF.

Bangladesh Bank assumes that the new banks will help increase the quality of banking services by increasing competition in the banking sector. They will also be able to meet the unfulfilled demand for credit by the private sector whose needs have grown in line with a fast expanding economy.

The central bank noted that, for new banks the ratio of opening rural and urban branch will be 1:1 which will help increase bank branches in rural areas and improve financial inclusion. But the home truth is; no bank can expand in the rural areas before concentrating and making business in urban areas.

Earlier, the issue of granting licenses to new banks caused many to raise their eyebrows. Questions were being asked by authentic experts, bankers and people even on the board of directors of the central bank about the wisdom of allowing more banks, a sector that had been struggling hard to cope with the problem of liquidity shortage for years together. The banking sector is already saturated with 47 commercial banks.

There was no logic to allow new banks at this moment of the country. The new comers will create an unhealthy competition in banking services, affect stability of the sector and cause profitability of the existing banks to suffer. The entry of more banks will trigger a flight of huge fund including Tk 36.00 billion from existing banks to place as paid-up capital against new banks; this will lead to further deteriorations of the stringent situation already prevailing in the banking sector.

The similar incident will take place for quality employees of the existing banks. All these will lead to a greater mismatch between their credit and deposit ratio and acute shortage of good bankers. The banks will be forced to go for risky investment after collecting deposit at high rate from an already saturated market. It will seriously affect the overall bank- business and the industry as well.

Banks are to facilitate all kinds of economic activities and finance many other needs of the people, in both urban and rural areas. But overcrowding of the banking sector is not at all desirable as this, instead of meeting those objectives, would create problems for the sector itself, particularly the existing operators in the sector. This might even adversely impact the vital sectors of the economy in the process.

It was unlikely that the board of directors of Bangladesh Bank were not aware of that fact. Yet they were trying to select the right ones since the government is unrelenting in its decision to allow new banks. Opening up of new banks on political consideration, as reported time and again, may reduce the confidence of the clients in banks as well as impair the management quality of the overall banking sector.

Meanwhile, some speculators state that as soon as new banks kick off their operations a heavy pressure on deposits of existing banks would be exerted. The latter are likely to see a flight of deposits while their existing loan liabilities including non-performing loans (NPLs) will remain at an unchanged level. This is likely to cause a mismatch between their deposits and outstanding amount of credits or loan portfolio.

Now that the central bank already approved new banks and issued the LoIs, it will be just beating about the bush to say anything to the contrary. Rather, now it is better to design how all these banks can be managed smoothly. In this regard the following measures may be implemented:

* The new banks should introduce new and innovative services and should scale up their products for the sake of making the government decision meaningful.

* There is no denying that the quality of the sponsors largely influences the quality of operation of banks as such sponsors play an important role in the decision-making. So, the central bank will have to closely examine the track records of the sponsors and it must not give in to political pressure of any sort on this issue. The quality of the bank directors should be maintained scrupulously.

* The central bank may concentrate its attention on the colour of money of the proposed directors who will be investing as the paid-up capital.

* The central bank must have to play the role of a watchdog in case of shopping the investment clients of new banks from existing banks by approving the higher limit then the present outstanding.

* The central bank must have to be vigilant in examining the proposed investment clients of new banks, particularly those whose cases have to be rescheduled. Getting rescheduled, the sick clients in the existing banks become very much performing in new banks for the time being in the backdrop of opening new banks in the market.

* The central bank needs to require to consider several other issues, prior to giving effective permission to new banks, including ownership quality.

* The vital issue that deserves priority attention of both central bank and the government is better banking coverage of the hitherto neglected rural areas. The new banks may be asked to serve the rural people extensively.

* On the top of everything, both the central bank and the government will have to ensure the entry of stronger players in the banking arena and keep close watch on the effects of such an entry on the overall banking industry.

* The Bangladesh Bank and Bangladesh Institute of Bank Management (BIBM) have to take preparation on structuring the banks by training up the bankers. Because market will be oversaturated as soon as the new banks start operations. The precipitations of banks may appear at the bottom of the banker of banks in Bangladesh. Time has arrived; the possibility of merger of weak banks cannot be laughed away.

Still we hope for the best. The newly approved three NRB commercial banks namely, NRB Commercial Bank Ltd, NRB Bank Ltd and NRB Bank Ltd will bring USD150.00 million as paid up capital of the non-resident Bangladeshis (NRBs). Expectations of the people about the six approved PCBs, such as Union Bank Limited, Modhumoti Bank Limited, the Farmers Bank Limited, Meghna Bank Limited, Midland Bank Limited and South Bangla Agriculture and Commerce Bank Limited, are quite high.

Now the nation is passionately staring at the functions of the new-born banks with a ray of hope of even development of the people of all the strata in the days to come.

Financial Express/Bangladesh/ 19th April 2012

Extensive use of advanced technology, high velocity analytical tools and applications by regulators and financial institutions can ensure sustained and inclusive growth which will result from a robust analytics driven system of financial governance, risk management and regulatory oversight.

Governor of Bangladesh Bank Dr. Atiur Rahman said this while addressing the concluding session of an international workshop on “Enterprise Governance, Risk Management and Compliance in Banks” jointly organised by SAS Institute and Bangladesh Bank Training Academy at the BBTA auditorium on Wednesday.

Later Dr Atiur Rahman presented certificates to the participants.

Deputy Governor S.K. Sur Chowdhury inaugurated the workshop in the morning.

SAS is the largest privately owned software company in the world based in Cary, North Carolina, USA.

Dr Atiur Rahman said, “I’m a firm believer in the destiny of Bangladesh as a knowledge economy and the presence of SAS Institute, widely recognised as the global leader in analytics software and services, in Bangladesh is an attestation of a sleeping market here for advanced analytics that is about to explode.”

The Daily Sun/Bangladesh/ 19th April 2012

The High Court Tuesday rejected a writ petition filed by Destiny Multipurpose Cooperative Society Ltd challenging a Bangladesh Bank (BB) report on illegal banking of the company, reports UNB.

An HC bench, comprising Justice Farid Ahmed and Justice Sheikh Hassan Arif, passed the order.

Md Rafiqul Amin, chairman of the cooperative society and Destiny 2000 Ltd, filed the writ petition with the High Court on April 8 seeking its stay order on the central bank report and a rule upon the government and the BB to explain the legality of the report.

The central bank's report revealed that Destiny Multipurpose Cooperative Society Ltd has been involved in illegal banking.

In his petition, the Destiny Group chairman stated that the BB's report was faulty and illegal as the BB did not follow due procedures while inspecting the company.

He also said the news published in different newspapers against the company caused huge damage to it.

Financial Express/Bangladesh/ 18th April 2012

The country's overall trade deficit widened by over 17 per cent to US$ 5.701 billion in the first eight months of the current fiscal year (FY '12) following higher import of petroleum products, officials said Monday.

"Higher import of fuel oil has widened the overall trade deficit during the period under review. But it might ease slightly in the coming months because of a falling trend in import of food grains along with unnecessary luxury items," a senior official at Bangladesh Bank (BB) told the FE.

The overall trade deficit rose to $ 5.701 billion in July-February of the FY '12 from $ 4.859 billion during the corresponding period in the previous fiscal, according to the central bank statistics.

During the period, export earnings stood at $ 16.006 billion against the import payments of $ 21.707 billion.

Import of food grains such as rice and wheat, in terms of settlement of letters of credit (LCs), witnessed a negative growth of 36.83 per cent to $ 704.01 million in the period from $ 1.11 billion of the corresponding period last fiscal.

The import of fuel oils increased by 49.63 per cent to $ 3.00 billion in the first eight months of FY '12 from $ 2.00 billion of the same period in the previous fiscal, the BB data showed.

The central banker also said the BB has already advised the commercial banks to make credits available to the priority sectors, including the productive ones, in line with the newly announced monetary policy.

On January 26 last, the BB unveiled a 'restrained' monetary policy aiming to bring down inflation to single-digit from the current level of over 10 per cent through discouraging credit flows to unproductive sectors.

The country's current account balance decreased by nearly 32 per cent to $ 681 million in the period under report from $ 999 million in the same period of the previous fiscal.

However, the overall balance of payments (BoP) has recorded a deficit of $ 516 million during the period under review from $ 222 million in the corresponding period in the previous fiscal.

The overall BoP entered the negative territory in FY '11 after a decade due to widening of the trade gap, lower growth of remittances and deficit balance in the financial account.

Financial Express/Bangladesh/ 17th April 2012

Bangladesh Bank (BB) has asked all scheduled banks to introduce advance technology to help central bank scan daily transactions in the commercial banks. According to BB, the latest move of the central bank is aimed at identifying suspicious transactions in order to check money laundering and terrorist financing. 

“The objective is to monitor all monetary transactions originating from alternate delivery channels such as ATM, KIOSKS, POS, E-Commerce, Internet Banking and Mobile Banking offered by the banks,” reads a circular issued last week by the BB’s Department of Currency Management and Payment Systems.

Speaking in details, an official of the concerned department said a single switch that would be connected to the National Payment Switch (NPS) could allow the BB headquarters to see all the transaction reports instantly.

According to the circular, the banks will need to be en-link with the NPS through which the central bank could monitor all monetary transactions originating from alternate delivery channels.

The BB suggested that the banks develop child switch at respective bank headquarters which would connect banks to the NPS, which would act as mother switch.

The circular reads: “Banks those have their own transaction switching system or share others’ system or planning to install their own system are advised to take necessary preparation to build up a single interface with the NPS to comply with the BB directives.”

The NPS will support transactions made through cards or account number (direct debit or credit), clear and settle electronic transactions through the settlement accounts of all the scheduled banks maintained with the central bank, it reads.

The Independent/Bangladesh/ 17th April 2012